Technology sourcing and strategic foreign direct investment

Abstract

Empirical evidence suggests that there are important spillovers associated with the operations of multinational enterprises. Spillovers may occur when less advanced, local firms learn from their more advanced, foreign competitors. But less advanced firms may also actively seek knowledge by investing abroad, so-called ”technology sourcing” FDI. The present paper focuses on entry strategies in the presence of technological differences and spillovers. The main result is that the technological leader may choose to invest in the foreign market in order to prevent technology sourcing FDI from its less advanced rival.